I’m not sure how many of you out there follow the stock market, but since I do a lot of my freelance writing based on it, I’m always following how things are going. Yesterday, Amazon released its second quarter earnings report for the year, and let’s just say it was no bueno. The company’s stock price dropped around 10% in after-hours trading and it hasn’t done much to gain any of that ground since.
But Amazon is great, right? I mean, the Fire phone is lame, but who can imagine life without Amazon? Everything they’ve done has revolutionized the way we think about shopping. It’s usually my first thought when I want to purchase something online, and they’ve got Amazon Smile, which is pretty cool. So I would never say anything mean about Amazon unless I felt it was necessary.
But here’s the dealio. You want to know why investors aren’t too keen on Amazon right now? Well, the company’s revenue for the quarter was $19.34 billion, which is good. Pretty dang good, actually. It was 23% higher than this time last year. And that’s the good part. People liked that. But when all that revenue went through the operating costs of the business, taxes, and all that other fun stuff (obviously I’m being overly simplistic here), they ended up with a net income loss of $126 million.
Kind of a big problem, right? But it gets even worse. This isn’t their first net income loss. In fact, they post one just about every quarter. So why is the stock worth over $300 a share? Because Founder/CEO has somehow sold investors on the idea that his company is investing in its future and they should too. Which is cool and all, if only that were a short-term thing. The thing is, he’s been saying it for years. In fact, the company estimates they’ll lose another $410 to $810 million over the next quarter, which is monstrous compared to the $25 million they lost last year at that time.
What if Amazon Were a Person?
Would you invest in someone who makes that much money but still can’t seem to run a surplus? Heck no like techno. Obviously, the company’s costs aren’t as simple as your typical household monthly budget, but there are definitely issues.
For example, the company actually sell the Kindle at a loss, meaning it costs more for them to make than what you pay for it. Why would any company do that, you ask? Because they want to be in your business. They want you to buy apps and books and music and games and all that stuff. They know the Kindle isn’t as good as the iPad, but if they can sell it cheap enough, people buy it. To them, it’s an investment.
Their logistics costs are through the roof AKA free Prime shipping. Again, why would they do that? Because they want to get you to pay for Amazon Prime. They’re also spending tons of money to compete with the likes of Netflix. In fact, they invest in every little thing that pops into Jeff Bezos’ head. Same-day delivery? Got it. Drone deliver? Working on it. Cloud computing? What? Didn’t they used to be just an online bookstore?
Anyway, the point of all this is that Amazon is giving each of us the perfect example of how not to live your life. It isn’t all about how much money you make, but how much you keep. And if you’re putting your money into so many different things, don’t expect to be able to hold on to any of it.
Also, don’t throw your money away. I expect that now that Amazon has finally received some sort of backlash for their uber spending, they’ll probably cut back on all the extraneous spending and go back to focusing on more of their core products. That doesn’t mean you can’t enjoy yourself now and then with a little fun or a little project. But don’t let things get out of control. The goal is obviously to be successful in the future, and going crazy with spending now can cripple you for a long time.
Finally, be reasonable. Just because you have money doesn’t mean you need to spend it. The main goal of any company should be to maximize its profits, and for all intents and purposes, that should also be the goal of any individual. The reasons are different, of course. I try to cut my costs to save for retirement, donate to worthy causes and go on vacations. But if you’re spending so much money on this and that now, you may never have enough to do the things that you really want to do. And forget about reaching that final destination of retirement.
Remember, wealth is not about how much money you earn, but how much you keep. Now I’m going to go surf Amazon to see if there’s anything worth buying.